Do I qualify for a Health Savings Account?

Ask NJMoneyHelp

April 13, 2017

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Q. I have Harvard Pilgrim health insurance through Obamacare. I pay $385 per month, the deductible is $3,000 with total out-of-pocket costs of $5,000. Neither the insurance nor Obamacare answer whether I can use a Health Savings Account. They keep referring me to each other. What can I do? Also, can I cancel the insurance without penalty if I have an income of only $28,000?
— Frustrated

A. Before we get to your specifics, let’s review how Health Savings Accounts (HSAs) work.

A Health Savings Account (HSA) is a medical savings account to which you can contribute and withdraw money for certain medical expenses tax-free, said Joseph Sarnecki, a certified financial planner with U.S. Financial Services in Fairfield.

For 2017, a HSA can be paired with a plan that has an annual deductible of more than $1,300 for self-coverage and $2,600 for family coverage, Sarnecki said. The annual contributions limit for an individual is $3,400 and for a family is $6,750, and if you’re over the age of 55, you can contribute an additional $1,000 “catch-up.”

All funds contributed to an HSA are 100 percent tax-deductible from gross income, up to the limits noted, he said.

“Based on the limited information provided on your Harvard Pilgrim Plan, it is impossible to say with certainty, but if all services, other than preventative care, including office visits and prescription co-pays, are subject to your $3,000 deductible, the plan is likely HSA compatible as your deductible is above the $1,300 minimum, and the plan is below the maximum $6,550 out-of-pocket,” Sarnecki said.

If so, you would be able to contribute the $3,400 IRS annual maximum contribution to be used for any eligible medical expenses, he said, or you can save $4,400 if over the age of 55.

“It is important to note that the exchange the insurance is purchased on does not have an impact on HSA eligibility, it is strictly the plan, so Harvard Pilgrim is the one who should confirm the plans status, not Obamacare,” he said.

On canceling the plan, Sarnecki said, you have the ability to terminate your policy, but you would be subject to fines through Obamacare for not having qualified health insurance coverage.

“The fine is owed for each month you do not have qualifying coverage, and is paid when you file your tax return for the year you do not have coverage,” he said. “It is based on a percentage of income (2.5 percent) or a per person flat fee, whichever is higher.”

He also noted as of today, you would be unable to switch carriers because you are outside of the Federal Open Enrollment Period, unless you qualify for Special Enrollment, such as in the case of a loss of employment, change in household size or change in residential location.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.